Balancing the books of a nation is a difficult taskbut balancing the books of the nation while the ‘raison d’tat’ continues unabated and public spending is increasingly hamstrung by a rising mountain of public debt is a lot more so.

The French government unveiled its 2027 budget on 1 October, with a package that will seek to produce around 54 bln in savings. The plans comprise continued austerity, with moderations to the tax system, as officials seek to narrow the deficit to 5% of economic output in 2027 from an anticipated 5.4% in 2026.

The issue of debt is one of the most pressing on the budget. France has seen the rise in public debt to 119% of the GDP and the return on borrowing has increased. This means higher interest rates will result in greater proportion of government income spent on servicing the current debt.

The pressure is even greater since France is gearing towards a very large programme of borrowing. Over 2027, France will raise around 340 billion of medium- and long-term debt to fund its deficit and to refinance maturing liabilities, making the confidence of investors extremely valuable for the country.

The budget proposal also has some provisions on public sector wages and pensions, healthcare expenditure and tax reliefs. The government believes that these expenditure controls are essential to regain fiscal discipline, while trade unions and some other political parties have opposed those measures that may reduce household purchasing power and/or could increase strain on public services.

That disagreement is now beginning to spill out of parliament. Taxpayers employed by the government and students have begun to march in the streets as anger mounts at proposed cutbacks. The protests hint at the political challenge for the government: although it matters to the public finances that these cuts are made, the pain of each individual cutback may be politically unpopular.

Adding to this, the dynamic of the political system in France further complicates the context. The government has to negotiate with a divided parliament, where it is hard to obtain the majority needed for new important laws. As the 2027 presidential election as well as several legislative elections are looming, parties are entering a politically sensitive period whereby agreeing on terms on taxes, pensions, and public expenditure is subject to difficulty.

Financial markets are paying attention to the discussion. Yields on French government bonds have increased a lot, which indicates that ‘future costs or uncertainty about the country’s state of its public finances and political risks. The Bank of France has stated there is no way the country can rely on European Central Bank to resolve the debt problems.

Meanwhile, France is not alone in the country-specific dilemma for staying at or below 60% of debt-to-GDP in 2027. The European Commission has anticipated that French public debt should exceed 120% in 2027 too if policies were maintained. What’s more, the commission emphasized the importance of a continuingly lowered deficit and a credible approach to reduce debt.